DirecTV Mobile Streaming Services Is In Line With Law, AT&T Tells FCC

AT&T’s DirecTV mobile video services that do not carry data charges for video streaming are legal under net neutrality rules, the telecommunications company told the Federal Communications Commission on Monday.

Earlier this month, the FCC told AT&T it had “serious concerns” about whether rivals will be able to compete with its upcoming DirecTV Now online video service that will cost $35 a month, including mobile streaming, and demanded a response by Nov. 21.

Wireless customers are increasingly use data-guzzling apps, including mobile games and video services. As customers often see data overage charges, wireless companies have been experimenting with sponsored data programs that let customers consume data for free on certain applications such as video streaming apps.

The FCC’s 2015 neutrality, or open internet, rules require internet service providers to treat all data equally and bar them from obstructing or slowing down consumer access to Web content. The FCC told AT&T in a letter on Nov. 10 that its DirecTV streaming service “may obstruct competition and harm consumers” because it could be too expensive for rivals not affiliated with AT&T to sponsor data programs to compete.

In a letter to the FCC, Bob Quinn, AT&T’s senior executive vice president, said that through its sponsored data program any unaffiliated content provider can pay AT&T to offer video services with free mobile streaming on the same terms and conditions.

AT&T lets any content provider “specify how much data they want to sponsor” and charges them “the same low per gigabyte rate regardless whether they are big or small or how much data they purchase,” Quinn said.

The FCC’s argument that AT&T does not incur costs in using its network to offer free data for video services, is “flatly incorrect,” Quinn said.

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Sponsored data services lead to a spike in video traffic stressing its mobile network, according to Quinn. As a result, AT&T has to make “capital-intensive investments, which will add to the billions (it) has already spent to keep up with skyrocketing mobile video usage,” Quinn said.

AT&T is betting big on mobile video to tap new revenue as the U.S. wireless market stagnates. It acquired DirecTV for $48.5 billion in 2015, making it the largest U.S. pay-TV operator with 25.3 million video subscribers.

FCC Has ‘Serious Concerns’ About AT&T Direct TV Mobile Video Service

U.S. Federal Communications Commission told AT&T it has “serious concerns” about whether rivals will be able to compete with its DirecTV Now online video service that will cost $35 a month and demanded answers by Nov. 21.

The FCC wireless telecommunications bureau told AT&T in a letter reviewed Thursday by Reuters that AT&T’s DirecTV service and its zero-rated app “may obstruct competition and harm consumers” because it could be too expensive for rivals not affiliated with AT&T to sponsor data programs to compete. The offerings may violate the FCC’s 2015 net neutrality rules, the government said.

The online video service will cost $35 per month, including mobile streaming costs, and target viewers who shun pay-television subscriptions, AT&T CEO Randall Stephenson said last month.

The wireless company’s streaming video service, which launches late next month, will have more than 100 channels.

Last month, AT&T announced plans to acquire Time Warner for $85.4 billion and some public interest groups are concerned that the combined company could put rival content providers at a disadvantage.

The Time Warner deal gives AT&T control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted media assets. Time Warner content will be incorporated into the upcoming video service, Stephenson said.

Bob Quinn, AT&T’s senior executive vice president, said in a statement the service of allowing mobile users to watch video without incurring data charges are “incredibly popular services that we hope regulators won’t take away from the millions of people who enjoy them today.”

He said the program makes it easier for consumers to drop cable – and said it will treat rivals equally. “We welcome any video provider that wishes to sponsor its content in the same ‘data free’ way for AT&T Mobility customers and we’ll do so on equal terms at our lowest wholesale rates,” Quinn said.

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The FCC letter from wireless telecommunication bureau chief Jon Wilkins said rival providers would face potential higher costs that DirecTV would not – including “overage fees and or reduced transmission fees” if subscribers exceeded allowances under their plan.

AT&T is betting big on mobile video to tap new revenue as the U.S. wireless market stagnates. AT&T acquired DirecTV for $48.5 billion in 2015, making it the largest U.S. pay-TV operator with 25.3 million video subscribers.

This Is the Secret to AT&T’s Merger With Time Warner

As Randall Stephenson continues the campaign to sell his proposed $100 billion purchase of Time Warner, the AT&T CEO has gone to great lengths to say he has no plans to bestow TV shows and other content from Time Warner with preferential treatment on AT&T’s network.

“We are not talking about changing how the content is made available to other people or customers or distributors,” the AT&T chief executive said in a recent interview with CNBC, arguing that the Federal Communications Commission should not be concerned about any potential anti-competitive aspects of the merger. “It’s a pure vertical integration.”

And yet, just hours after the acquisition was originally announced, that statement was already outdated—and arguably even untrue—after AT&T announced its new all-digital DirecTV Now service.

The new service provides access to more than 100 channels from a variety of different providers—including Time Warner—and it will only cost $35 a month. That’s significantly less than competitors like SlingTV.

But AT&T customers get an even better deal because watching the new service won’t count against their mobile data usage, no matter how much they consume.

This is the real secret to how AT&T plans to make the Time Warner acquisition work, and it’s called “zero rating.” That’s when a carrier allows its customers to stream content (which it either owns or licenses), but charges everyone else for the same privilege.

One of the most common questions raised since the merger was announced was how the telecom company was going to make money from Time Warner’s content business. Restricting access to that content by providing it only to AT&T users wouldn’t make any sense. But with zero rating, AT&T t can theoretically have its content cake and eat it too.

AT&T isn’t the only carrier that uses zero rating to give its customers preferential access to certain kinds of content. Almost all the major telecom companies do it, and some cable providers, including Comcastcmcsa.

For example, Verizonvz customers who watch videos on the company’s Go90 streaming service don’t use up any of their data, and neither do those who watch Verizon’s NFL mobile offering, which it pays the NFL $1 billion a year for the rights to stream on mobile devices.

And T-Mobile tmus also uses zero rating to allow its customers to watch video from partners it has signed deals with as part of its BingeOn plan, without consuming any data. (But T-Mobile doesn’t charge partners for being part of the program.)

But doesn’t this violate the principle of “net neutrality,” which is supposed to require the owners of pipes—like telecom companies, cable and satellite providers, and Internet service companies—to treat all data the same and not give preferential treatment to any service?

The short answer is yes, it certainly seems to do so. But the Federal Communications Commission hasn’t ruled on these kinds of programs yet, despite repeated complaints from technology companies such as Mozilla and groups like the Electronic Frontier Foundation. The FCC says it is conducting an “informal policy review” of the practice.

Defenders of zero rating argue that it doesn’t disadvantage anyone—it simply requires those who want their services to be part of the program, which usually involves paying a fee. And it provides a clear benefit for customers, they say.

AT&T gets around the idea of net neutrality or zero rating in its description of the new DirecTV Now service, saying “the data required to stream it onto your mobile device is incorporated into the price of the content.” But if that’s true, how can DirecTV Now be almost 50% cheaper than similar services from non-carriers?

At a Wall Street Journal conference, Stephenson pooh-poohed the idea that the FCC or anyone else needs to protect the over-the-top streaming market, remarking, “Netflix is probably going to be okay.”

AT&T to buy Time Warner for more than $80 billion. Watch:

But the point of net neutrality rules isn’t necessarily to protect Netflixnflx because it has billions of dollars that it can spend paying T-Mobile or Comcast the fees required to be part of zero rating. It may not like having to do so (and it has fought bitterly with Comcast over the practice in the past), but at least it has the means to pay if it wants to.

The real victim of policies like zero rating will be the up-and-coming services or potential Netflix and DirectTV killers that won’t get past first base because they can’t afford the fees.

Policies like zero rating could allow telecom companies and cable providers to cement their control over the content that flows through their pipes, and thus capture and retain users who might otherwise move to competing providers, or cut the cord completely.

AT&T users may sign up for the new DirecTV Now service in droves because they can essentially watch unlimited amounts of it for nothing. And that may benefit those users, and it may help AT&T justify the $100 billion it is spending to acquire Time Warner twx. But it’s not at all clear that consumers as a whole or the digital economy will benefit.

And if and when the FCC decides to do something about zero rating, it could make it a lot more difficult for AT&T to justify its massive acquisition.

AT&T Agrees In Principle To Buy Time Warner

AT&T has reached an agreement in principle to buy Time Warner for about $85 billion, sources said on Friday, paving the way for a blockbuster deal that would give the telecom company control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted media assets.

The deal, which has been agreed on most terms and could be announced as early as Sunday, would be one of the largest in recent years in the sector as telecommunications companies look to combine content and distribution to capture customers replacing traditional pay-TV packages with more streamlined offerings and online delivery.

AT&T, which sells wireless phone and broadband services, has already made moves to turn itself into a media powerhouse, buying satellite TV provider DirecTV last year for $48.5 billion.

It also in 2014 entered a joint venture, Otter Media, with the Chernin Group to invest in media businesses, and has rolled out video streaming services.

AT&T will pay $110 per Time Warner share, or about $85 billion overall, sources told Reuters. That would make it the biggest deal in the world this year.

Time Warner’s shares twc rose almost 8% in regular trading, and a further 4.7% after hours, to $93.84, giving it a market value of about $73 billion. AT&T tfinished down 3% at $37.49.

Time Warner is a major force in movies, TV and other areas, with HBO, CNN, Cartoon Network, TBS, TNT, TruTV, Turner Classic Movies, the CW network, New Line Cinema, DC Comics, Castle Rock Entertainment and other assets. Time Warner disclosed a 10% stake in video streaming site Hulu in August.

Time Warner Chief Executive Jeff Bewkes rejected an $80 billion offer from Twenty-First Century Fox in 2014, but sources said on Friday that the former suitor had no plans to renew its bid.

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The Wall Street Journal reported on Friday that Apple Inc approached Time Warner a few months ago about a possible merger and has been monitoring its talks with AT&T.

An agreement between Dallas-based AT&T and New York-based Time Warner could be announced as early as on Monday, according to the sources, who asked not to be named because the talks are confidential.

CONTENT AND DISTRIBUTION

Owning more content gives cable and telecom companies bargaining leverage with other content companies as customers demand smaller, hand-picked cable offerings or switch to watching online. And new mobile technology including next-generation 5G networks could make a content tie-up especially attractive for wireless providers.

“We think 5G mobile is coming, we think 5G mobile is an epic game-changer,” Rich Tullo, director of research at Albert Fried & Company, said in a note, adding that mobile providers would be in position to disrupt traditional pay-TV services.

The Wall Street Journal reported earlier on Friday that AT&T and Time Warner were engaged in advanced talks and a cash-and-stock deal could come as soon as this weekend.

A previous Time Warner blockbuster deal, its 2000 merger with AOL, is now considered one of the most ill-advised corporate marriages on record.

Time Warner was not immediately available for comment. AT&T declined to comment.

Cowen and Co analyst Doug Creutz, who said AT&T would need to pay at least $100 a share in mostly cash to acquire Time Warner, questioned the strategy of buying content instead of licensing it.

“What does it get them that they can’t get by licensing Time Warner content and at a much cheaper price than buying the whole company?” Creutz asked, noting it was unclear what savings could be gained “from stapling distribution and content together. It’s been tried. It never works.”

AT&T would likely be able to win U.S. antitrust approval for the deal, some experts said, but it is unclear whether certain conditions would be needed to win that approval.

The U.S. Justice Department “will look at it but they won’t stop it,” said Darren Bush, who teaches antitrust issues at the University of Houston. Bush predicted regulators as a matter of course would make a second request for information, meaning the review would last several months.

Andre Barlow, an antitrust lawyer at the law firm Doyle, Barlow and Mazard, noted that the government may worry about whether other cable and internet companies would continue to have access to Time Warner content like HBO and CNN.

The media industry has been seen as ripe for consolidation, and several stocks rose on the news, including Netflix, which closed up about 3.4%, and Discovery Communications, which ended up 3.6%.

More People Are Subscribing to Multiple Video Streaming Services

As the number of streaming video services proliferate, about 16% of U.S. video viewers have signed up for more than one online streaming service, up from 10% three years ago, according to a report from market research firm GfK SE.

GfK’s October report is based on interviews with 1,054 consumers on their subscription choices of streaming services such as Netflix and Amazon Prime video, the firm said in a statement on Wednesday.

In recent years, the television industry has seen viewers increasingly gravitate towards online streaming video services and shunning pricier cable and satellite subscriptions.

The online streaming market is expected to get more crowded with new services from Hulu, which will launch a new live TV bundle of broadcast and cable network channels early next year and AT&T, which will roll out its DirecTV Now streaming service by the end of the year.

About half of the viewers surveyed subscribe to at least one on-demand video streaming service, while 17% subscribe to Netflix and Amazon Prime and 9% have Netflix and Hulu Plus, GfK said. Five percent had Amazon Prime, Netflix nflxx and Hulu Plus.

Viewers who self-bundle, or create their own content bundles by subscribing to a combination of streaming services, have a mean income of $90,000, versus the mean income of $76,000 of a viewer who watches at least one video per week through any means online, TV or otherwise, the report said.

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Even so, those who self-bundle are less likely to subscribe to more the expensive traditional cable and satellite TV services, Gfk found.

“As consumers start to self-bundle, the potential impact of increasing subscriber fees for each streaming service will be compounded,” David Tice, SVP of Media and Entertainment at GfK, said.

“The last one to a price increase party may be the first one canceled – so individual streaming services need to consider competitor plans before instituting price hikes. There may also be a place in the market for a third-party aggregator of discounted streaming services,” he added.

Discovery Renews Carriage Deal with AT&T DirectTV

Under the agreement, Discovery’s networks, which include Discovery Channel and Animal Planet, will be available on all of AT&T t DirecTV’s platforms, including its upcoming DirectTV Now streaming service scheduled to launch later this year.

Terms of the deal were not disclosed.

The announcement helps remove investor concerns that Discovery disck, like some of its peers, would see a reduction in affiliate fees, wrote Michael Nathanson, an analyst with MoffettNathanson, in a report Thursday.

“As one of the few cable network groups that had not yet been impacted the by effects of distributor consolidation, there was legitimate worry among investors that Discovery would take the hit from rate resets and tiering issues experienced at Viacomviab and more recently, Scripps Networks,” Nathanson wrote.

Discovery now has deals in place with both Comcastcmcsa and AT&T DirectTV, leaving Charter Time Warner Cabletwc as the only distributor it has to renew with in the next one to two years, according to the report.

“We believe that affiliate fee growth will not experience a similar meaningful deceleration as its peers,” Nathanson wrote in the report.

7 Horrible Rip-Offs by Cable Companies Were Exposed This Week

It probably wasn’t necessary to conduct a federal investigation to find out that America’s cable companies routinely mistreat and rip off customers. Within the past week, after all, yet another survey confirmed that American consumers despise Time Warner Cable, Comcast, and basically the entire cable-Internet complex—an industry that always ranks lowest in customer satisfaction ratings.

All the complaints couldn’t be ignored forever by our leaders in Washington, and this week the results of a U.S. Senate investigation led by Sen. Rob Portman (R., Ohio) and Sen. Claire McCaskill (D-Missouri) were released in a report entitled “Some Cable and Satellite Companies Do Not Refund Customer Overcharges.” While the focus of that report was fairly narrow, and only covered but one aspect of why cable companies infuriate customers, a Senate hearing that followed the report exposed many other problems customers have with their cable companies. McCaskill also issued her own report on the subject, targeting bad customer service and faulty billing by the cable companies. Altogether, the research shows several of the most hated cable company practices–which are probably depressingly familiar to cable customers.

Overcharging customers. Let’s start with the focus of the main report, which showed that Time Warner Cable and Charter Communications—which will soon merge and become one company—are guilty of widespread overbilling for equipment, programming, and assorted other fees. TWC will overcharge customers around $2 million in 2016, according to the Senate report’s estimate, while Charter admitted it has been overcharging customers to the tune of $443,000 per month.

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No effort to rein in overcharges. “Time Warner Cable and Charter made no effort to trace equipment overcharges to their origin unless customers specifically asked them to and did not provide notice or refunds to customers,” the Senate report found. (Comcast and DirecTV, by contrast, have policies in place to automatically check that charges are correct and refund overcharges.) In the hearing, a TWC executive justified its policy by way of saying that some customers underpay, and therefore it supposedly sort of evens out, the Consumerist reported.

Refusal to do what the customer asks. This one will be no surprise whatsoever to anyone who has called their pay TV provider to request a lower price or simply cancel the service. Basically, customer “service” agents are on a mission to talk the customer out of either option. “As stated in a Time Warner Cable training document, the goal of the retention agent was to ‘do the opposite of what the customer is calling for. If the customer is calling in to cancel, your goal is to not cancel the services!’” the report stated, according to the Wall Street Journal. Mind you, all telecom companies work this way, not just TWC. “And if the customer wants to lower the bill, you’re going to try to avoid that, and perhaps even raise the bill!”

Failure to tell people how much they’ll really pay. The annoying customer service practice mentioned above would rarely be necessary if another hated practice wasn’t the standard. We’re talking about the business’s pricing structure, in which customers are enticed in with low introductory prices that inevitably will be jacked up much higher down the road. How much higher? Many customers now know that within three years of signing up they can be easily be charged 50% more than their intro rate, assuming they don’t call up to complain and demand a better price. But it’s often impossible to tell how much their cable company will try to charge them for service down the road.

Essentially, cable companies “figure out a way to make the entry price as low as possible; figure out how to roll people off that entry price as quickly as you can, and then deal with their anger once the price has gone up,” McCaskill said at the hearing. She then asked a panel of telecom representatives, “Do any of you advertise the price after the promotion?” No one answered, according to Consumerist.

Impossible to find out what the best deal is. “Customer service representatives at DirecTV were told to only offer the lowest price option ‘if [they] will lose the sale,’ as this package was only used as an option for customers who were considering cancelling service,” McCaskill’s report explained. “Similarly, customer service representatives at DirecTV, Time Warner Cable, Comcast, and Charter were instructed to first attempt to sell customers higher priced packages before moving to less expensive options based on the customers’ reactions.”

The websites of companies like Comcast CMCSA, Charter CHTR, and Dish DISH either don’t list the truly lowest price service option, or make it nearly impossible to find it, so the typical customer is in the dark about whether or not they’re being offered a good deal.

Overcharging on fees just because they can. Often, fees that aren’t advertised are added to cable customer bills, and the rate at which they’re charged have nothing to do with costs incurred by provider. Instead, they are “set according to the company’s overall revenue goals, taking into account what the market will bear, and sometimes considering cost, while also focusing on the customer’s willingness to pay for a certain service or piece of equipment,” McCaskill’s report stated.

Failure to automatically refund nonsensical fees. McCaskill mentioned in her report that she personally called up her cable provider a couple years ago complaining about an unnecessary $10 charge. “I learned that I was paying a fee that the company was no longer charging its newer customers and that the company would immediately remove the charge on my bill. I also learned that the only way that I could have known about this and gotten the fee removed was to do exactly what I did and call the company,” she said, according to USA Today. “Had it been up to the company, I would have been paying that fee forever.”

Congress Scrutinizes Pay T.V. Billing, Competitive Practices

(Reuters) – A U.S. Senate panel disclosed Thursday it is investigating pay TV competition and customer service issues and will call executives from top cable and satellite providers to testify.

The investigation comes as the U.S. cable and satellite TV industry ranks among the lowest in consumer surveys over billing and other practices.

Senators Rob Portman, an Ohio Republican who chairs a panel on investigations and Claire McCaskill, a Missouri Democrat, said in a statement Thursday that they will hold a June 23 hearing that will include testimony from Comcast cmcsa, Charter Communications chtr, DirectTV, a unit of AT&T t and Dish Network.

The pair said in a joint statement the panel has been investigating the largest cable and satellite TV companies for more than a year, looking at potential barriers to competition in the industry, “including the difficulties faced by companies attempting to create innovative new television delivery models.”

The committee has also been examining billing, fees, refunds and other customer service issues.

“We believe our hearing will be a big step forward for consumers, allowing them to understand how their TV providers really work and make informed decisions about their video service,” the pair said.

Comcast declined to comment. Charter, which completed its acquisiton of Time Warner Cable and Bright House Networks in May, said in a statement “our overall customer satisfaction ratings are trending in the right direction. Call volume into our call centers is declining, as are service calls.”

The senators noted that a recent American Customer Satisfaction Index survey found pay television service ranked near the bottom of the 43 industries surveyed – a year after the pay-TV industry tied for the lowest score among all industries ranked.

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The hearing follows a Federal Communications Commission proposal to allow consumers to swap pricey cable and other pay TV boxes for cheaper devices and apps, a change that would boost competition in the $20 billion television set-top box market.

The proposal would let customers get video services from providers like Alphabet googl, Apple aapl and Tivo tivo. It set off a lobbying battle between tech companies eager to tap into the market and cable and TV companies which could lose billions of dollars in rental fees.

The FCC says 99% of U.S. customers now must get their boxes from their cable companies, and they pay on average $231 a year to lease the devices.

DirecTV’s Two-Hour Outage Sends Customers Scrambling

(Reuters) – DirecTV, the satellite TV provider owned by No. 2 U.S. wireless carrier AT&T, said all channels have been restored after experiencing loss of audio and video for at least two hours on Tuesday.

“All channels have been restored. We apologize for the inconvenience,” AT&T spokesman Eric Ryan said in a statement.

AT&T t bought DirecTV for $48.5 billion last year, making it the world’s No. 1 pay-TV operator with 45 million video subscribers, including Mexico and Latin America, at the end of 2015.

AT&T, trade groups mount court challenge to FCC Internet rules

(Reuters) – AT&T and three cable and wireless trade groups filed separate lawsuits on Tuesday challenging the Federal Communications Commission over its new web traffic regulations.

AT&T T is the first large telecom player to individually appeal against the FCC’s so-called “net neutrality rules.” The suit comes even as the No.2 U.S wireless company’s proposed $48.5 billion acquisition of satellite TV operator DirecTV DTV is under FCC review.

The National Cable and Telecommunications Association, CTIA-The Wireless Association and American Cable Association also filed lawsuits in the U.S. Court of Appeals for the D.C. Circuit. USTelecom trade group filed a similar lawsuit on Monday.

AT&T’s challenge follows one by smaller Internet provider Alamo Broadband in the 5th U.S. Circuit Court of Appeals in New Orleans last month.

The rules take effect 60 days after their publication in the Federal Register on Monday, a step that set off a series of lawsuits.

Approved in February and posted online on March 12, the FCC’s new rules treat Internet service providers as more heavily regulated “telecommunications services,” more like traditional telephone companies.

AT&T and the groups in their filings said the rules were “arbitrary, capricious” and against various laws and procedures.

The new rules prevent broadband providers from blocking or slowing any Internet traffic and from striking deals with content companies for smoother delivery to consumers.

“Instead of promoting greater industry investment …the FCC opted to resuscitate a command-and-control regulatory regime, including a process where innovators must first seek permission from the FCC before rolling out new services,” CTIA President Meredith Attwell Baker said in a statement.

In a similar vein, NCTA’s President Michael Powell said the FCC’s “utility style regulation” was a cause of concern.

AT&T and other Internet service providers such as Verizon VZ and Comcast CMCSA have decried the FCC’s new rules stating that they would thwart investment and innovation.

Telecom and broadband companies would continue to invest in improving and upgrading their services despite the new rules, FCC Chairman Tom Wheeler said at an industry event in Austin, Texas on Tuesday.